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Timely Payment of an Appraisal Award Does Not Mean the Claim Was Handled in Good Faith


Timely payment of an appraisal award should not be a “Get Out of Jail Free Card” for an insurer guilty of bad faith claims conduct. A federal court in Louisiana recently denied most of an insurer’s motion for summary judgment in a bad faith case arising from a disputed winter storm damage claim. 1 The case, Industrial Packaging Corp. v. Union Insurance Company of Providence, highlights several important issues that frequently arise in property insurance disputes, including the appraisal process, Louisiana proof of loss requirements, and what constitutes bad faith claims handling.

The commercial property policyholder suffered property damage during the severe winter storms that hit the region in February 2021. On February 22, 2021, Industrial Packaging reported a loss to Union Insurance, claiming that melting snow and ice had caused wet and damaged insulation and other damage to building components. Union Insurance assigned an independent adjuster, who inspected the property on March 5, 2021.

The adjuster’s report noted that the building’s roof dated back to 1986 and showed signs of past leakage issues, including elastomeric coating over roof seams. The adjuster did not observe any obvious openings or damage to the roof caused by the weight of ice and snow. However, because Industrial Packaging claimed the roof did not leak before the storm, the adjuster recommended hiring an engineer to further evaluate the damage.

A disagreement quickly developed regarding the scope and amount of covered damage. On May 27, 2021, Industrial Packaging invoked the policy’s appraisal provision to try to resolve the dispute.

The appraisal process got off to a rocky start. The parties disagreed about whether appraisal was premature since Union Insurance claimed it had not yet been able to fully investigate and estimate the loss. Nevertheless, a joint inspection took place on July 16, 2021.

On August 9, 2021, Union Insurance submitted an estimate of just $14,886.49 to repair insulation damage. That same day, Industrial Packaging’s appraiser submitted a dramatically higher estimate of $1,907,759.55. On August 12, 2021, Union Insurance issued payment to Industrial Packaging for $13,886.49 (its estimate minus the $1,000 policy deductible).

Appraisal Process Complications

Appraisals are supposed to be fast and inexpensive. This did not happen in this case. The appraisal process hit snags when Industrial Packaging raised concerns about a potential improper relationship between Union Insurance’s appraiser and the mutually selected umpire. This led to the resignation of Industrial Packaging’s original appraiser, followed by its second appraiser. A third appraiser selected by Industrial Packaging had a conflict with the original umpire, resulting in that umpire’s resignation as well.

Gamesmanship in appraisals can take place. It would not surprise me if this type of conduct was not explored more through litigation because this seems to be the trend.

Finally, after Industrial Packaging filed the pending lawsuit, the parties finally agreed on a new impartial umpire. Industrial Packaging’s appraiser submitted a replacement cost value (RCV) estimate of $1,155,537.70. Union Insurance’s appraiser estimated an RCV of $32,573.05 and actual cash value (ACV) of $30,236.82. The appraisal panel ultimately issued an award finding an ACV of $714,031.15 and RCV of $754,039.04 – over 50 times higher than Union Insurance’s original estimate.

Industrial Packaging filed suit alleging breach of contract and bad faith. The insurer also sought summary judgment on various categories of damages claimed by Industrial Packaging. The company claimed Union Insurance failed to conduct the claims handling and appraisal process in a timely manner and handled the claim in bad faith. Union Insurance moved for summary judgment, arguing it did not breach the contract and that Industrial Packaging could not prove bad faith because Union was looking for that “Get Out of Jail” absolution by paying the appraisal award within the policy time frame. I noted the fallacy of this argument in Good Faith Is Demonstrated by Prompt and Full Payment—Wrongful Insurance Company Adjustment Should Not Be Swept Under the Rug by Belated Payment:

This argument by the insurance companies, in this case, is similar to other insurance companies’ desire to obtain a ‘get out of jail free card’ after paying significantly more after appraisal. It is purely a technical and flawed argument to say that there is no breach of contract since the insurer paid prior to a court judgment. The policyholders in this case noted the absurdity of the argument since paying the amount owed three years after the loss certainly is not paying the full amount owed in a prompt manner. Technically, the insurance company does not have to pay on the contract until 30 or 60 days after a judgment per common policy language. It would be absurd to say that an insurer could or should escape bad faith culpability just because it timely paid after a judgment.

The Court’s Ruling

The federal district court denied most of Union Insurance’s summary judgment motion, allowing Industrial Packaging’s key claims to proceed toward trial. The court ruled that the bad faith claim survives to the trial stage. The court found genuine disputes of material fact regarding Union Insurance’s alleged bad faith, precluding summary judgment. Two key factors influenced this decision. First, the parties disputed when Union Insurance received satisfactory proof of loss, triggering its duty to initially pay. Industrial Packaging argued this occurred by March 11, 2021, when the independent adjuster completed his inspection. Union Insurance claimed it did not have sufficient information to estimate the loss until much later. The court found this presented a factual dispute for trial.

The court also noted that Union Insurance’s original $14,886.49 estimate was approximately 52 times lower than the ultimate $754,039.04 RCV determined through appraisal. This vast disparity “raise[d] issues of material fact as to whether Union Insurance’s original adjustment was conducted in good faith and whether it could have reasonably relied on the numbers its own retained adjusters supplied.” The court cited other recent cases that found similar large discrepancies between insurer estimates and appraisal awards created triable issues on bad faith claims. It concluded that a jury should determine whether Union Insurance had turned a blind eye to evidence of covered losses.

The court did rule for the insurance company on part of the motion. It noted a corporation cannot experience mental anguish damages. Further, Industrial Packaging failed to submit evidence of business income loss from suspended operations. Finally, the court granted summary judgment to Union Insurance on the temporary repair issue, finding the appraisal award already accounted for temporary repair costs.

On the other hand, the court denied summary judgment on the recoverable depreciation issue. While the policy required actual repair/replacement before paying replacement cost value, the court recognized an exception where an insurer’s own delay in payment makes timely repairs impossible. This is another hot topic of property insurance litigation because most policyholders look to the insurance payment and promise of payment to finance the repair and reconstruction.

Who says appraisal is fast and cheap? The court allowed Industrial Packaging to potentially recover its $136,429.12 in appraisal costs as special damages under Louisiana’s bad faith statute. While the policy required each party to bear its own appraisal expenses, the court found Industrial Packaging could recover these costs if it proved Union Insurance’s bad faith predated and necessitated the appraisal process. This is obviously a foreseeable damage when insurance companies fail to act in good faith during the adjustment and should be a regular element of consequential damage in these types of cases.

Key Lessons

This case illustrates several important points for policyholders and their representatives to keep in mind when dealing with disputed property insurance claims:

Document Everything: Carefully document all communications with the insurer and evidence of damage. This creates a clear record of when the insurer received satisfactory proof of loss, the history of claims handling and the proof of damage needed for settlement with or without appraisal or litigation.

Be Prepared for a Potentially Costly Appraisal Process: While appraisal can be an effective way to resolve valuation disputes, it can also be time-consuming and expensive. Industrial Packaging incurred over $136,000 in appraisal-related costs. Consider whether the potential benefits outweigh these costs before invoking appraisal.

Significant Estimate Discrepancies May Support Bad Faith Claims: Courts recognize that vast differences between insurer estimates and ultimate claim valuations can be evidence of bad faith. Certainly, an insurer acting in good faith can be subject to an appraisal award, which may cause those wondering how the panel ever came to a different conclusion. But policyholders should document their own thorough damage estimates to contrast against lowball insurer offers and their refusals to honestly and fully consider all the evidence.

Replacement Cost Value May Still Be Recoverable: Even if repairs are not completed by the time of trial, courts may still allow RCV claims to proceed if the insurer’s delay in payment made timely repairs impossible. Be prepared to explain how underpayment prevented you from completing repairs. This result differs depending on state law, but it is clear that insurers have an incentive to delay, not pay and fail to promise to pay, which they then use to argue out of the replacement cost benefits.

Appraisal Costs May Be Recoverable In Bad Faith Cases: While policies typically require parties to bear their own appraisal costs, courts may allow recovery of these expenses as special damages if bad faith can be proven. Document how the insurer’s conduct necessitated the appraisal process.

Temporary and All Repair Costs Should Be Included in Appraisal: Make sure any amounts spent on temporary repairs are accounted for in the appraisal process, as they may not be separately recoverable later.

Corporate Policyholders Cannot Claim Mental Anguish: Mental anguish claims for individuals are difficult to prove in most jurisdictions. For corporations, focus on provable economic damages rather than emotional distress when the insured is a business entity.

Business Income Claims Require Proof: Be prepared to provide specific evidence of suspended operations and associated income loss to support business interruption claims.

This case is a good study of a typical property insurance adjustment gone awry. I have attached two motions filed by the parties for those wishing to study this more. By understanding the key legal principles at play and following the lessons outlined above, policyholders and their representatives can better position themselves to achieve fair claim resolutions and hold insurers accountable for improper claims handling practices.

In the context of appraisal, I have previously written about this topic in Texas Gives Insurers A “Get Out of Jail” Free Card When Appraisal Is Demanded. Larry Bache wrote Colorado Insurance Companies Do Not Have a “Get Out of Jail Free Card” For Delayed and Underpayments Following Appraisal.

My bet is that Steve Badger will want to talk about this case the next time we debate at the P.L.A.N. Property Loss Appraiser & Umpire Certification Conference in Dallas. Texas. The event will be held Monday, October 14th-Friday October 18th. Here is a link for the registration.

Thought For The Day

The insurance industry has always been a frustrating business. You’re selling a product that people don’t want to buy, don’t want to think about, and don’t want to use.
—Warren Buffett


1 Industrial Packaging Corp. v. Union Ins. Co. of Providence, No. 22-5972 (W.D. La. Sept. 12, 2024).